Britain’s Treasury is finalizing plans for sweeping regulation to control the cryptocurrency industry.
The rules include restrictions on international companies selling within the UK, guidelines on how to handle the collapse of companies and restrictions on product advertising.
These new regulations come on the heels of the market turmoil following the collapse of cryptocurrency exchange FTX, which filed for U.S. bankruptcy court protection last month.
Ministers are preparing to open consultations on the new regulations, with the intent to bring cohesion to the “Wild West” of finance.
Prime Minister Rishi Sunak explained in April that “effective regulation” would help make Britain a global hub for crypto-asset technology and would encourage “tomorrows businesses to innovate, invest and scale up on UK shores”.
Inspection of money-laundering controls of UK-based crypto companies has begun this year by the Financial Conduct Authority, but it lacks broader powers to protect consumers in areas such as mis-selling, false advertising, fraud and mismanagement.
Three people familiar with the Treasury’s thinking explained that the new powers will enable the FCA to oversee crypto more broadly, including monitoring how companies operate and advertise their products. The proposals would also set out how crypto companies could be wound down as well as restrictions on selling into the UK market from overseas.
The powers will be part of the financial services and markets bill, a wide-ranging piece of legislation that is going through parliament. The bill was amended in late October to include future provisions for cryptocurrency.
The crypto industry has become embroiled in crises after crises, making it the government’s aspiration to make the UK a global hub.
During an event in Edinburgh, City minister Andrew Griffith insisted those ambitions were unchanged despite recent calamities and explained that we would be foolish to ignore the potential of the underlying technology.
He said the financial services bill would establish a framework for regulating crypto-assets and stablecoins, and that the government would be “consulting on world-leading regime for the rest of the crypto-asset market later this year”. Stablecoins are crypto assets whose value is linked to a highly liquid traditional asset such as the US dollar or the UK pound. The UK launched a consultation on crypto regulation in early 2021 that was mostly focused on stablecoins.
A Treasury spokesperson told the Financial Times that the UK is committed to creating a regulatory environment in which firms can innovate, while crucially maintaining financial stability and regulatory standards in order to be used by people and business both reliably and safely.
Government insiders believe that the consultation will be launched early 2023 due to the fast-moving events in the crypto world.
Nikhil Rathi, chief executive at FCA, announced that his agency was already being proactive in areas where it did not yet have powers, including publicly warning on “the risks of investing in crypto and the potential of losing your money”. He added that 85% of the companies that applied to join the regulator’s crypto register did not pass the FCA’s anti-money laundering tests.
On Wednesday, the cross-party Treasury select committee will quiz experts from the FCA and Bank of England on its risks, the case for regulation and the pros and cons of central bank-issued cryptocurrency known as CBDC.
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